That's is also why it is relatively easy to stay 100% invested in the market at all times no matter how expensive the market gets. There are almost always deals out there. Sometimes not quite as easy to see as this one though. I own IBM, bought this summer and will keep adding to my stake if shares trade under $192. Hopefully they stay under $192 for the next 2 years! Better yet under $176. :)

IBM looks cheap, but they seem to be laser focused on current profits, possibly at the expense of investing in growth/innovation. That's fine for other industries, but I don't understand the business well enough to see how it will work in the fast paced IT competitive environment.

Coach is looking more attractive too with the recent pullback. Although I like Vera Bradley's growth opportunity better.

I'm always eager to hear what you have to say. I admire the confidence you have in your judgments, and your ability to consistently hold all of your assets in just one or two equities. You must have ice in your veins, my friend.

@megashort

That's probably the most common criticism of IBM, and it is certainly something that needs to be seriously considered.

My amateur thinking from reading the annual reports is that IBM isn't just reallocating capital toward higher margin segments over lower margin ones...but more importantly, for the long-term, re allocating capital towards segments that they will be less affected by technologic change, specifically consulting and similar IT services.

The example that came to mind when I was reading the annual reports was the Big 4 accounting firms. It doesn't matter what changes come to the GAAP, they could rewrite GAAP from scratch, and those 4 firms would still be considered the go-to firms for any major businesses accounting needs. Their moats are very wide and full of angry crocodiles.

Similarly, with IT Services, IBM (an to a similar extent ACN, maybe CTSH, and perhaps 1 or 2 others I'm forgetting) are/are becoming a Big 3 or 4 of IT Services. It seems like it is becoming more and more of a highly profitable oligarchy, like accounting is. And IBM (along with ACN I guess) is the 800lb gorilla. Innovations will turn IT upside down over the next half century, but IBM will almost certainly still be there, providing whatever services are needed to service these new innovations. That's the magic. The technology itself can change radically, but IBM will still be the "expert" regardless.

Also, I don't think IT is actually as competitive as most people think. Companies don't consistently earn 50%-85% returns on equity (see IBM and ACN) in really competitive markets. (Sorry, I just walked out of a microeconomics final exam about 2 hours ago lol)

Switching gears to COH, I am still long, and COH it is my largest position after IBM. (Also long BRK.B, MCD, and LUK)

Those links you provided were very informative. (I've bookmarked both) Thank you very much!

COH is certainly being challenged. No question about that. Lots of profits attracts lots of competition. That seems to be the nature of capitalism.

But they're still a long long way from being #2 in this industry, and even if they were, being #2 in bags is a very profitable place to be. (Not that I actually see them being #2 in the near future) The real question is this, is COH's earnings/cash flow per share going to be significantly higher 3-5 years from now? I think the answer is almost certainly yes, and that is why I own shares. What is the probability that I will experience a permanent loss of capital owning COH at these prices? Pretty minute I think.

VRA is certainly interesting. The fact that there's only 5 years of data is what holds me back. (and that I already have 18% of my assets in COH) But VRA's numbers and valuation are certainly interesting.

Anyway, I hope my ramblings were worth the read. I'm just trying to learn more about businesses and get better at this investing thing. I certainly could be proven a fool over time, and trying to disprove your own ideas is probably the best way to avoid that.

Also, I don't think IT is actually as competitive as most people think. Companies don't consistently earn 50%-85% returns on equity (see IBM and ACN) in really competitive markets.

Yes, I think you're right. Right now they have a great business.

But to play devil's advocate, I think part of the promise of the cloud, SaaS, IaaS, etc. is the continuing consumerization of enterprise software. If software is getting simpler to use, there's less need for consultants.

If you have a large legacy system you are most likely to work with IBM, right? But if you have a newer system you are more likely to call Accenture, Cognizant, Oracle, etc.

The markets tend to get overly optimistic during short-term strong periods and overly pessimistic during short-term weak periods. Ultiimately, this leads to great buying opportunities and great selling opportunities

Look at CMG's share price over the past 18 months. After falling roughly 50%, it is back up over 100%. Did the long term prospects of CMG really waiver that much? Of course not. Have the long term prospects of IBM really changed that much? Of course not. It's just an example of a short-term blip that has created a buying opportunity.

I dig IBM and ACN. In terms of perceived quality, IBM and ACN are still way ahead of the "value" technology services companies like CTSH. ACN's brand is probably a bit stronger than IBM, though they are more of a pure consulting play than IBM. ACN is also much more attractive from a Cash Flow to EV basis, if you're into that sort of thing.

I dig Coach, too. Any company that can annually invest $1 in CapEx and get back about $5-6 in OCF is a winner in my book. At a 13 P/E, book it.

I also like PNRA right now. I don't think a short-term weak streak in comps and earnings changes the long-term outlook. The Ben Graham expectation (per the Intelligent Investor) for a company trading at a P/E of 23 is like 8% growth per year. I think Panera can hit that.

Well I feel your amateur thinking isn't so amateur. I think it is stepping back and seeing the big picture. Many people fail to do this.

I also wanted to tell you one more thing that might help you get better returns in the future. I see you mention circle ofcompetence quite a bit. Which I could not disagree on you with on our discussion on you MCD pick. I am sure you picked that up from Graham/Buffett school of thought. One other thing you should think about more is MARGIN OF SAFETY. If you would incorporate that in your pitches it would help. Margin of safety would be MY number 1 thing when thinking of making a INVESTMENT.

Example: I think IBM is worth X. Currently IBM is trading at .7 times X. Something as simple as that. It may seem amateur but could be an eye opener. I think it will keep you from making many mediocre picks. 20Punches would be a good profile to do it on. Although you should do it on ALL your picks. Plus I want to see what you value the equity at!!! :)